Dan Poresky: Allentown City Council should reject water lease

March 19, 2013

Privatization in Allentown is quickly displacing the pension as the big scare. No wonder! Contrary to Mayor Pawlowski's promises, the proposed lease would permit higher water rates and added fees, plus possible tax increases while it would eliminate critical safeguards for the public and workers.

What to do? The mayor is committed. He's not going to change his mind no matter how obvious it is that privatizing will be a disaster.

The decision will be City Council's to make. Very shortly council members will be asked to approve a contract for which, if they vote yes, will bind generations of Allentonians and future councils to a concessionaire over which they will have very little control.

Fortunately, if council acts quickly and wisely there are options that will avoid the privatization horror and provide time for crafting better solutions to the pension problem.

Allentown is embarking on a billion-dollar economic development renaissance that will soon be generating millions in new revenue. In five years, the idea of leasing our utility will be unthinkable. In the meantime, creative minds can find ways to forestall the pension crunch.

How bad is the lease? My analysis shows that base water rates will rise at double the rate of inflation. In addition, over the next five years, the city will have to raise taxes to recover the $40 million to $44 million the city was taking from water revenues and using for city services — money the lessee will get to keep.

Consider this new provision. Should, for example, United Water get the lease and Lehigh County Authority doesn't like the terms, it may decide to break ties with Allentown. The revised lease says that the city will have to compensate United Water for the money it will lose. Who would find that acceptable?

In a major blow, the lessee no longer is required to provide pensions for water workers. So much for the mayor's promise to protect the workers. Is that acceptable?

And the negotiations with a final bidder haven't even begun. Further concessions are inevitable. And who are these bidders?

One bidder, Allentown Forward, is a consortium of investors led by the New York-based private equity firm, Antarctica Capital. According to its website, it focuses on market fundamentals to target strong assets that can withstand market downturns and provide above-market returns. For each asset, it creates a business plan that identifies strategies for maximizing value, minimizing risk, and positioning the asset for a timely exit. This is a group the mayor considers qualified to run our water utilities.

The way I see it, City Council has four choices.

•Say "no" to privatization now and give the problem back to the mayor where it belongs. Privatizing the water was not council's idea.

•Let the voters decide. Put the privatization question on the ballot. Council voted that down and a technicality invalidated our initiative but council can still do it.

•Authorize or recommend to the administration that a special task force be set up to evaluate the real costs and risks of privatization and alternatives to deal with the pension. Yes, council voted that down twice. But maybe now council members will see the need for independent analysis.

•Go along with the mayor and be blamed and reviled by the public and future councils for generations.

On that last note, four City Council members — Ms. Mota, Mr. Guridy, Mr. O'Connell and Mr. Glazier — no doubt know there are five candidates vying for their seats in the May primary. At least three of these candidates will be speaking out against privatization because they know it is wrong and they know the overwhelming majority of voters, including union members, oppose it.

I've suggested four options. If council members choose any of the first three, they are heroes. If they choose the last, they face the judgment of history and the voters.

In the current political climate, I think it would take more political courage for them to go along with the mayor than oppose him.